Recapping the fall (and potential rebirth) of Steve Perlman and OnLive

I still remember the skepticism I held towards cloud gaming service OnLive before it launched. Actually skepticism is too polite a word. I was sure the service would never work and I scoffed at the idea of it.

But it did, and it worked pretty well, from a technical point of view. Financially, not so much. About two weeks ago it all fell apart under the public scrutiny of Twitter and other social networks. On August 17th there was talk that all the employees had been let go and the service was folding.

Things weren't quite that disastrous for OnLive's customers; the service never shut down. But as many as 200 employees were let go without severance pay as the company shed payroll in preparation for filing for Assignment of Benefit of Creditors. This is an alternative to bankruptcy in which all assets of the company are sold to new investors. In so doing things like stock options get wiped out so that the new buyers don't have to carry that responsibility forward.

It was an ugly situation, but one person who didn't lose his job was founder Steve Perlman. He stayed on, at least initially, as CEO which must've really irked the hard-working individuals who went from gainfully employed with stock options to out of work with nothing to show for their service to the company.

Perlman did have the decency to donate $50,000 towards a fund to provide health care for former employees, according to VentureBeat.

Yesterday, Perlman changed course again and did leave the company, explaining his reasons in a farewell letter to OnLive's customers. The gist of his message is that he feels like the company is in good hands and he's eager to work on some of his other projects. The rumor mill suggests that some ex-employees refused to come back to work for the 'new OnLive' as long as Perlman was at the helm.

VentureBeat has done a great job covering this story and if you want to learn more, they've compiled a timeline of events with links to their coverage of each step of the unraveling of the company.

So what went wrong for OnLive? I think they just misjudged their audience. They were offering 'core games' on the service, but 'core gamers' have the hardware to run games locally. OnLive was competing with services like Steam (and the crazy sales Steam runs) and it just had nothing to offer to gamers. Why pay the same price (or more) for a cloud license to a game rather than buying a conventional copy? Core gamers were skeptical of both gameplay issues (lag and not being able to mod their games) and of what would happen if OnLive failed (their OnLive game collections would vanish).

OnLive is a better fit for the casual gamer who doesn't have a fast PC and a good graphics card. It just isn't clear to me that the casual gamer is all that interested in the games OnLive has to offer. Casual gamers are happy going to Kongregate or Facebook (or to their smartphones) to get their gaming fix.

I'm really interested to see what happens next. How will the new OnLive owners turn the company around?

As an on-again, off-again OnLive user, I've lost all confidence in the company and can't imagine investing any more money in my OnLive game collection at this point. I don't imagine I'm alone in this. OnLive will have to focus on its "PlayPass" subscription system (in which you pay a flat rate to get access to a reasonably large library of games) going forward or find another source of income, like patent royalties.

Read more of Peter Smith's TechnoFile blog and follow the latest IT news at ITworld. Follow Peter on Twitter at @pasmith. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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